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  • What we look for to obtain assurance

    As part of our Top 1,000 Tax Performance program, we carry out income tax streamlined assurance reviews to help us establish justified trust.

    To achieve justified trust, we seek objective evidence that would lead a reasonable person to positively conclude you have paid the right amount of tax. We need to obtain assurance over the whole of your business and economic activities connected or linked to Australia.

    To do this, we look for the following details from you during our reviews.

    Financial information and tax reconciliation

    • A detailed statement of taxable income with supporting working papers which indicate the nature of adjustments made to accounting profit to determine taxable income.
    • Explanation around the nature of adjustments where income tax adjustments are specific to your industry, business or a particular transaction.
    • An explanation of  
      • the differences between accounting and tax groups
      • why the starting profit in the tax return differs from the audited financial statements.

    Supporting working papers to the tax return, schedules and disclosures

    • Tax return working papers which show how disclosures were prepared and any supporting calculations. Supporting work papers include those that are internally produced (hand written or excel spreadsheets) or calculation work papers created using tax return preparation software.
    • International dealings schedule working papers which breakdown all related party transactions into their respective types, the relevant offshore counterparty, the actual value of the transactions and how they are priced.
    • Thin capitalisation calculations which include a balance sheet for the tax consolidated group (TCG) or multiple entry consolidated (MEC) group which shows how average assets, non-debt liabilities and average adjusted debt is calculated. You should supply working papers that show how debt deductions were calculated.
    • A summary of the fixed asset register and any relevant policies and procedures, including  
      • how effective lives are determined and reviewed for each major class of asset
      • a reconciliation between the tax and accounting fixed asset register.

    Tax effect accounting

    • Tax effect accounting working papers.
    • An explanation of why deferred tax balances have been recognised and any reconciliation of tax effect working papers to the tax effect disclosures made in the financial statements.

    Tax governance and risk management

    • Responses that have considered our guidance and have undertaken a gap analysis of current policies and procedures against our guide.
    • Analysis which explains why policies and procedures differ from our guidance.
    • Evidence that controls have been designed and were operating effectively during the review period. This could be shown by internal or external reviews testing the controls, provided the reviews are conducted by a party independent of the tax team.

    Group structure

    • A diagram or written explanation showing  
      • all related entities operating in Australia even if outside of the tax consolidated or MEC group
      • overseas subsidiaries or permanent establishments of the Australian group
      • all intermediary holding companies of the Australian group
      • other offshore related entities who transact with the Australian group.

    New businesses and transactions

    • Responses which explain the nature of any new business or transactions and the treatment of any income or expenses arising from the new activities.

    Restructures

    An explanation of

    • the nature of any restructures (whether they are domestic or cross border)
    • the treatment of any income, or expenses / losses arising from the restructure itself (if any)
    • changes in underlying income and expenditure as a result of the restructure.

    Acquisition of an interest in another entity

    • Where an acquisition results in an entity joining a TCG or MEC group, provide sufficient information which demonstrates how tax values of assets owned by joining entities have been determined.
    • Where the acquisition is part of a global acquisition, provide evidence which shows the relative market value of the Australian entity or business acquired.

    Asset disposal

    • Provide evidence of both the proceeds and how the cost base was determined.
    • Where there is a disparity between the accounting gain or loss on disposal and the tax gain or loss on disposal, provide an explanation of why there is a differential.

    Funding

    • Where funding is vanilla (eg loans with third party banks or ordinary equity), provide a very brief response confirming these facts.
    • Where the funding involves more complicated or unusual financial arrangements or related parties, a more detailed response is required, which includes a summary of  
      • the relevant term
      • the accounting and tax treatments and
      • the legal documentation.

    Taxation of financial arrangements (TOFA)

    • A table listing the different types/categories of financial arrangements in place in each review year, and the associated gains and losses recognised each financial year for each type / category.
    • Where the TOFA treatment is different from the accounting treatment, provide an explanation of how the gains and losses are identified or calculated.

    Tax losses

    • A detailed summary of any available and / or utilised tax losses showing year of incurrence / utilisation and whether these are group losses or transferred losses.
    • Where losses are utilised during the period of review, but those tax losses arose in respect of income years which have not previously been reviewed by us, an explanation to support the validity of those losses.
    • Detailed work papers to support the satisfaction of either the continuity of ownership test (COT) or same business test (SBT).
    • Where losses have been transferred in during the review period, an analysis supporting the transfer of the tax losses and any calculation of the available fraction, including
      • how underlying market valuations were calculated or
      • valuation reports.

    Controlled foreign companies (CFCs)

    • Working papers which support the attribution of income, or explaining why no attribution is necessary, in respect of each CFC.
    • Sufficient information about the type and source of income of the CFC to allow confirmation that such income is not eligible designated concession income (EDCI) (listed country CFC's) or that the active income test is passed (or not) and whether such income is passive or is tainted.

    Offshore branches or permanent establishments (PE's)

    • An explanation of why a PE exists (eg there is a fixed place of business overseas etc).
    • Transfer pricing documentation in respect of PE's.
    • Advising whether any of the arrangements of the type described in Taxpayer Alert 2016/7 exist in dealings with the PE.

    Transfer pricing (TP) documents

    • Unless covered by country by country reporting, contemporaneous TP documentation for each year of review. This documentation should cover all offshore related party transactions including financing transactions and dealings with offshore permanent establishments.

    See also:

      Last modified: 30 May 2019QC 58438